BYD - China's Number 1 Electric Vehicle Company Is Booming
Apr. 6, 2015 10:15 AM ET
Summary
- BYD is at the center of two of the largest booms this decade - Smartphones and Electric Vehicles.
- Buffet's Berkshire Hathaway bought into BYD with a 10% stake.
- Goldman Sachs has a buy recommendation on BYD. Goldman expects BYD's electronic car sales to grow at an annualized 57% all the way to 2020.
BYD (
OTCPK:BYDDF) stands for "Build Your Dreams".
The Chinese (Shenzhen) based car and battery company has certainly being doing that.
They have been getting a lot of attention lately and their Hong Kong listed shares have risen by 30% this past month since I discussed BYD in my Seeking Alpha article
here.
The Group's 2014
revenue breakdown as announced last week is as follows:
48% - Automobiles
43% - Handsets and Assembly Services
9% - Rechargeable battery and Photovoltaic
As you can see from above, BYD earns about half of their revenue from their automobiles division. This includes conventional petrol cars, fully electric cars, hybrid (electric and fuel) cars, and electric buses. The other major contributor at 43% is handsets and assembly services. This is mostly assembling mobile phones and smartphones. They also supply the lithium batteries.
In China they are the top seller of electric vehicles (EVs) in 2014, and also so far in 2015.
BYD Qin - China's top selling EV
Source
BYD therefore finds itself benefiting from three strong trends:
1) The rising middle class of Asia being able to buy a smartphone or an electric car. The middle class is set to triple in size between now and 2020 according to DBS - see also
here.
2) Smartphones - In 2014, the worldwide smartphone market shipped a total of
1.3 billion units. This is a 27.7% growth from the 1.0 billion units of shipments in 2013.
3) Electric Vehicles - In 2014 Chinese EV sales grew by a staggering 424% to
reach 74,763.
China Electric Vehicle market - background
China has a long stated goal of reducing its dependency on imported oil by promoting new energy vehicles, including passenger cars and buses. The Chinese goal is to produce 500,000 New Energy Vehicles (NEVs) in 2015, and to produce 1,000,000 such vehicles annually by 2020. In 2014, 23 million regular cars were sold in China, so 1 million electric vehicles pa should be an achievable goal by 2020.
The global electric car market alone could hit $70 billion by 2021 and still be only 2 percent of total cars,
according to a Barclays estimate.
Five reasons for the current surge in Chinese EV sales are:
1) The Chinese Government gives electric vehicle manufacturers large subsidies typically
around 60,000 yuan (USD $9,750) per electric vehicle (recently extended to 2020).
2) Electric vehicles also qualify for an exemption from a
10 percent purchase tax until end 2017.
3) Free license plates issued in cities including Shanghai, where plates for a conventional gasoline powered auto can cost about
USD 12,000.
4) Last year the PRC placed a
mandate that 30% of all Government vehicle purchase be EVs no later than the end of 2016. Local Governments will need to start buying more to reach their quotas. The ratio will likely be raised beyond 2016.
5) China is considering providing as much as
100 billion yuan ($16.25 billion) in government funding to build electric vehicle charging facilities. By 2015, China plans to deploy
2,351 charging and replacement stations and 220,000 charge spots. By 2020, China has a
5-year plan for 10 million electric charging stations. China just recently completed the building of charging stations from Beijing to Shanghai with a station
every 25 km.
In their
2014 annual report BYD stated:
"During the Year, the Group has accumulated a great number of unfulfilled orders on hand for new energy vehicles due to the limitation of the battery production capacity. As such, the Group was actively expanding its battery production capacity in an attempt to meet the market demand during the Year ".
"During the Year, revenue from the Group's new energy vehicle business increased by about 6 times to approximately RMB 7,251 million, accounting for 27.60% of the revenue of the Group's automobile business".
On their phone assembly business:
"The consistent momentum in the growth of the smartphone market bolstered the development of the handset component and assembly industry".
BYD said "2014 profits declined by nearly 22 percent, to $69.8 million (on an 11 percent increase in revenue, to $8.92 billion). But past investment appear to be taking off. BYD says it expects first quarter profit to increase to as much as $24.2 million, from just $1.9 million in the first three months of last year.
BYD group's 2014 EPS stands at 0.18 RMB.
Looking ahead to 2015 and beyond
BYD said its electric vehicle sales will triple this year (2015) to
60,000 units, on the back of four new models, released each quarter. For the BYD group demand for the Tang, the SUV sister to the Qin which is in production now,
is supposed to be through the roof.
BYD also sell electric buses and supplies the taxi market with EVs. This has expanded globally with sales in several countries and a new factory in Brazil.
Source
"Build Your Dreams" is arguably the Tesla (NASDAQ:
TSLA) of China. It has recently announced it will build a
"giga" factory similar to Tesla. By 2020 it expects to have about 34 GWh of production capacity, on par with the 35 GWh of production (about 500,000 vehicles worth of batteries).
Goldman Sachs has a buy recommendation on BYD. Goldman expects BYD's electronic car sales to grow at an
annualized 57% all the way to 2020.
BYD's main competition are several other Chinese electric vehicle companies such as Kandi (NASDAQ:
KNDI), SAIC, BAIC, Chery and others, as well as the global manufacturers Nissan (
OTCPK:NSANY), General Motors (NYSE:
GM), Tesla,Toyota (NYSE:
TM) and others.
I think BYD's advantages are as follows;
1) It is a Chinese company - so it get's support from the PRC including large subsidies guaranteed until at least 2020.
2) Its background as a battery manufacturer, and by 2020 its giga battery factory will allow it to lower EV costs and be a supplier to other EV companies.
3) Its strong brand name known for quality. You can view a test drive video
here.
4) Its early mover advantage in China as number one in EV sales, combined with its electric taxi and electric bus sales.
5) Its products (cars and buses) are great.
6) It benefits from three key trends - the rising Chinese middle class, rising EV sales, rising smartphone sales (via assembly and batteries)
7) EVs will be increasingly popular in China as prices come down and there is a massive upside potential in sales.
8) If it achieves its 60,000 EV sales goal for 2015, that will significantly boost company revenues and profits.
The stock is not cheap and trades on a high PE multiple (not nearly as high as Tesla) depending upon what exchange you buy it on.
But for the growth investor with a 5 year plus time horizon who is prepared to buy the stock on dips I think it is a great investment.
For US investors it is listed under the ticker code BYDDF and it is available on most online brokers such as TD Ameritrade. Note the stock valuation can vary from exchange to exchange.
I have bought BYD (01211-HK) on the Hong Kong Stock Exchange where it currently trades with a 2015 PE of 27.2.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
